U.S. stocks continued to sell-off as increases in the federal funds rate and low outlooks on global growth weigh on investor confidence. Despite an increase in the federal funds rate, interest rates dropped as the 10-year treasury yield fell 10 basis points to 2.79%. The spread between the 10-year treasury yield and the 2-year treasury yield remained unchanged at 0.14% as short-term rates also dropped. Amid the federal funds rate hike, the price of gold jumped 1.32% to its near 6-month high of $1,258.50 an ounce. Consequently, the U.S. dollar weakened as its index (DXY) dropped from 97.40 to 97.02. The price of crude oil dropped 11.03% to $45.38 a barrel as concerns about oversupply and potential slowdown in global growth drove the price downward.
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THIS WEEK’S ECONOMIC HIGHLIGHTS
- Housing starts picked up in November, increasing to an annualized rate of 1.26 million from 1.22 million the month prior. Housing permits also saw an increase, rising from an annualized rate of 1.26 million in October to an 8-month high of 1.33 million in November.
- Existing home sales rose 1.9% in November to an annualized rate of 5.32 million as they continue to rebound off of a 3 year low in September. However, year-over-year existing home sales are down 7.0% as rising mortgage rates have made financing a home less attractive to buyers.
- The Federal Open Market Committee (FOMC) raised the federal funds target rate range by 0.25 percentage points from 2.25% to 2.50% (or implied target rate of 2.375%), as expected. The FOMC’s outlook on more rate hikes in the future was also little changed from a month ago, adding that they plan on “some further gradual rate increases”. Forecasts expect the median target rate to increase to 2.90% by the end of 2019, down from the 3.10% forecast last September.
- Initial unemployment claims rose by 8,000 to 214,000 for the week ending December 15th, after dropping a significant 27,000 the week prior. Continuing unemployment claims, which lag initial claims by a week, rose by 27,000 to 1.69 million with its 4-week average up 20,000 to 1.67 million.
- The Philly Fed General Business Condition Index continues to trend downward dropping from 12.9 in November to 9.4 in December (any reading above zero indicates improving conditions), yet new orders rose a very strong 5.4 points to 14.5.
- New orders of durable goods rose a moderate 0.8% in November after dropping 4.4% the month prior. However, new orders in “core” durable goods (nondefense capital goods used in the production of goods or services, excluding aircraft) dropped by 0.6%.
- Third quarter real GDP grew at an annualized rate of 3.4%, a fraction lower than the 3.5% growth rate expected. Consumer spending, which accounts for approximately 70% of GDP grew at an annualized rate of 3.5% versus the 3.6% expected, while business investment and government spending rose 2.5% and 2.6%, respectively.
- Personal income came in slightly below expectations in November but still rose 0.2%, however, consumer spending came in above expectations at 0.4%. Meanwhile the Personal Consumption Expenditures (PCE) price index rose a moderate 0.1% for a year-over-year change of 1.8%, slightly below the Fed’s 2.0% target. Core PCE, which excludes the volatile food and energy components, also rose 0.1% on the month but for a slightly higher year-over-year change of 1.9%.
Bloomberg reports that for only the 4th time ever, the S&P 500 is currently more volatile than emerging market stocks. Even so, year-to-date large-cap U.S. stocks are down 9.6% while emerging equities have fallen 16%.
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